Several Arizona residents challenged in federal district court an Arizona statute that allows tax credits for money spent toward parochial schools. They alleged that the statute violates the religious establishment clause of the U.S. Constitution's First Amendment.

The district court dismissed the case and ruled that it lacked jurisdiction for two reasons: First, the federal Tax Injunction Act (TIA) prohibits federal district courts from ruling on the "assessment, levy or collection of any tax under state law where a plain, speedy and efficient remedy may be had in the courts of such state." And second, the court pointed to the comity doctrine - that is, the deference that federal courts should generally give to state tax laws. The Ninth Circuit Court of Appeals reversed, ruling that neither the TIA nor comity place the case outside federal jurisdiction. The court reasoned that the TIA was inapplicable because invalidating a tax credit would not harm Arizona's ability to raise revenue.

Question

Do the federal Tax Injunction Act and comity principles require federal district courts to dismiss (for lack of jurisdiction) constitutional challenges to state tax credits that directly affect a state's tax system?

No. In a 5-to-4 decision written by Justice Ruth Bader Ginsburg, the Court held that the intention of the Tax Injunction Act (TIA) was to prevent taxpayers from trying to avoid their state taxes through federal litigation. TIA was not intended, however, to prevent all federal interference with state taxation. Justice Ginsburg wrote, "Third-party suits not seeking to stop the collection of a tax imposed on plaintiffs were outside Congress' purview. ... Nowhere does the [legislative] history announce a sweeping congressional direction to prevent federal-court interference with all aspects of state tax administration." (emphasis original) Establishment clause challenges to state tax exemptions for religious eduction could therefore be challenged without violating TIA.

The fundamental... the fundamental question in this case is whether the meaning of the term assessment, as used in the Tax Injunction Act, includes Arizona's school tax credit.

As this Court has written on several occasions, the Tax Injunction Act has a very broad reach.

It drastically limits the access to Federal district courts.

The act is relatively simple and... and straightforward.

It's just 35 words, as I count it, and it specifically says the Federal district courts shall not enjoin, restrain, or suspend the assessment, levy, or collection of a tax under State law where there is a plain, speedy, and efficient remedy in the courts of that State.

Justice Scalia: Where is the assessment here that... that supposedly is being enjoined?

Mr. Goddard: Your Honor, the assessment is the calculation of a tax by the... for the taxpayer.

In other words, it's the bottom line.

It's the plain meaning of assessment and the dictionary meaning.

It is what happens after you've done all the additions and subtractions and you get to line 40 on the Arizona tax return form which is--

Justice Scalia: It's... it's a self-assessment?

So you... it's a self-assessment that's being enjoined?

Mr. Goddard: --Your Honor, I'm not talking about a self-assessment.

I believe a self-assessment is a colloquialism that talks about what all of us go through as taxpayers.

The assessment I'm talking about is what the defendant in this case, Elliott Hibbs, the Director of the Department of Revenue in Arizona, does both for individual taxpayers and for all the taxpayers collectively to determine what the State's revenues are going to be from the taxpayers.

And the only way you get to the revenue is that bottom line on the tax form--

Justice Ginsburg: Mr. Goddard--

Mr. Goddard: --after you've done all the credits.

Justice Ginsburg: --Mr. Goddard, I thought that in a self-assessment system, such as the one we have, the Federal Government, Arizona, that assessment is associated with assertion of a deficiency.

In Arizona, is every taxpayer assessed by the government?

That would be quite a different system, wouldn't it?

Mr. Goddard: Your Honor, every taxpayer in Arizona has their form calculated by the government.

We check the math.

Justice Ginsburg: You... you audit everyone in the State?

Mr. Goddard: No, Your Honor.

I'm not trying to say we audit everyone, but technically the assessment, and as it is used also in the Internal Revenue Code to my understanding, is the assessment... and I'm quoting from the Internal Revenue Code... shall be made by recording the liability of the taxpayer in the Office of the Secretary.

Justice Ginsburg: Which the Government does when it wants to assert a deficiency.

And we were told that the assessment just a week ago is nothing more than a bookkeeping entry, and what it does is it triggers certain administrative remedies.

But my understanding was that an assessment is made when the Government wants to assert a deficiency.

Otherwise, there isn't this entry, this bookkeeping entry someplace, that every taxpayer isn't assessed.

Mr. Goddard: Your Honor, it is... it is our position that the State of Arizona under our State tax system assesses all taxes in the State and that--

Justice Kennedy: When... when does that happen?

When the return is received in the office or?

Mr. Goddard: --It... it returns during... excuse me.

Your Honor, the... the activity perhaps is... is somewhat fictional in terms of the... of the director.

He's not going to sit down, as in the old days, with a green eyeshade and write down a number for each taxpayer.

But he does, in fact, and his office does, in fact, calculate the gross revenues in the State, what credits are going to be applied against those gross revenues, various adjustments, and comes up with a bottom line.

And that bottom line is our dictionary... Black's Dictionary definition of what an assessment is.

Justice Ginsburg: But that's not the assessment that you... I mean, you used the Internal Revenue Code provision.

That is an entry.

We were told it's a bookkeeping entry.

And it's made as a prerequisite to levying liens, to extending the statute of limitations.

But it certainly isn't true that that kind of assessment, which is what your brief suggested you were talking about, is made in the case of every taxpayer.

Mr. Goddard: Your Honor, I'm not saying that every taxpayer has a... a specific entry next to their name.

That would... that would certainly be more than we could do.

But our statutes, our tax system in Arizona does, in fact, call for an assessment of the liability of each taxpayer.

And that assessment, the entire plan, scheme fixed upon for charging and taxing, the Webster's definition of assessment, is the bottom line.

And I guess that's the plain meaning that I'm trying to get to.

Justice Souter: Because I... I assume that assessment is... is... the assessment that we're concerned with is... is within the meaning of Federal law.

But let me just ask you this question.

Do you have a statute in Arizona that in effect says what the department does with respect to each taxpayer is to assess that taxpayer?

Does... does that word occur as a statement for some technical function that you go through with respect to every taxpayer within the meaning of Arizona law?

Mr. Goddard: Your Honor, I... I can't say that we have that specific word in our statute.

We certainly--

Justice Souter: Well, then... then isn't your problem this, that... that there... that that specific word is used in the Federal statutes, quite apart from the Tax Injunction Act?

And... and my understanding is the same as Justice Ginsburg's.

It used in... in a way that... that involves a... a predicate to the... the assertion of a lien or... or steps to collect a deficiency.

And... and that doesn't seem to be what is involved here.

Isn't... isn't that a problem for you in your position?

Mr. Goddard: --Your Honor, I don't believe so because the... the first step... and... and the three words in the statute I think are... are certainly helpful: assessment, levy, collection.

What essentially the Congress--

Justice Souter: Well, there's no issue of a levy going on here, and they're not trying to stop you from collecting anything.

I mean, their... their argument is you ought to be collecting more, but they're certainly not interfering in a way that's going to leave Arizona without money while it litigates.

What they're saying is we want to litigate so that you'll get more money, and... and so that I suppose that's why the Ninth Circuit said why... that the closest thing to a word involved here that... that might let the statute apply is assessment.

Mr. Goddard: --Yes, Your Honor, we believe that--

Justice Souter: And it didn't think it did.

But, I mean, it seems to me that that's a basic textual problem in... in your case, and I don't understand how you get around it.

Justice Ginsburg: The technical assessment that's made tied to a deficiency you don't fit.

So you're talking about some other kind of assessment than the one that, for example, the Government was telling us about last Monday in the Galletti case, not that technical... some... if we're talking about property, say, a property tax, then maybe an assessor comes on the land, looks at the house, attributes a value to it.

That wouldn't be a self-assessing system from the taxpayer's point of view.

But... but the income tax is quite different.

You assess yourself.

Sometimes you get audited; sometimes you don't.

And I don't see that anybody here is trying to stop the government from making the assessment that would be a trigger to asserting a deficiency.

No one is trying to stop Arizona from asserting a deficiency against any taxpayer.

Mr. Goddard: --No, Your Honor, but... but what we're asking for is that the... the director, Mr. Hibbs, be able to... as the statute says, to implement the... the tax system under State law.

Justice O'Connor: Well, is it the case, though, that other courts of appeal at the Federal level have concluded that the Tax Injunction Act does not bar suits that would increase State revenues rather than reduce them, that the purpose of the Tax Injunction Act was to prevent reduction of State tax revenues, specifically by corporations coming in and getting injunctions and preventing the State from receiving revenues, but that it doesn't apply where the effect of the... the suit would be to increase the State's coffers?

Mr. Goddard: Your Honor, if I could deal with... there... there are two questions, one, the legislative history and... and the... as this Court has noted--

Justice O'Connor: First of all, with the courts of appeal, the majority have so held, I guess, who have addressed it.

Mr. Goddard: --Your Honor, there is... is language in the Seventh Circuit opinion which speaks about this, but it is in a very limited sense in... in Dunn v. Kerry.

I don't think it's applicable here.

I'd be happy to discuss that.

I would refer the course also... the Court also, as our brief does, to First Circuit U.S. Brewers v. Perez interpreting the Butler Act which is identical in language to the Tax Injunction Act; to Kraebel v. New York Housing Department in the Second Circuit which talks about a tax benefit.

That's what we have on... at... at stake here is we try... the... the respondents are trying to draw a division between all State tax systems to say anything that involves raising revenue is challengeable only in State court, but if there's a benefit involved, if there's anything else that accrues to the benefit of the taxpayer, that has to go Federal court.

I believe that's--

Justice O'Connor: I don't know about that, but a... a challenge to a tax credit I think is what we're talking about.

Right?

Mr. Goddard: --Well, Your Honor, I don't believe there's any logical distinction between a deduction, an exclusion, an exemption, and a credit.

They all--

Justice Kennedy: Well, I suppose you could... I suppose you could make the argument that it... it's wrong to say the State is only interested in increasing revenue.

The State may be interested in fairness for its taxpayers, giving its taxpayers the... the benefit of the lower rate.

That's certainly a... a sound State policy.

Mr. Goddard: --Thank you, Your Honor.

I... I think that's one of the policies, if not the principal policy, behind the Tax Injunction Act is respect for State procedures and also--

Chief Justice Rehnquist: General Goddard, the... what we've been talking about is this section of 1341 that talks about assessment, levy, or collection of any debt.

Those three words fit perfectly into a property tax scheme.

They really don't fit nearly as well into an income tax scheme.

Are there cases from courts of appeals that say that the... the act does apply to income tax as well as property tax?

Colonial Pipeline is another that I would cite showing a tax benefit not a tax deduction to the State.

But the most precisely on point is ACLU Foundation v. Bridges from the Fifth Circuit, interestingly after a couple of other cases which might have... which have been cited by the respondents for their proposition that... that somehow the revenue... I mean, the State revenue... things that give revenues to the State are significantly different from items that benefit the taxpayer.

I would submit that under this scheme and under the scheme that this Court has discussed in the six cases that... where it has discussed the Tax Injunction Act in detail speak about a much broader application.

Justice Breyer: You were going to go to the history or something else.

I... I don't want you to forget that, and the reason I don't want you to forget is I'm thinking yours is a plausible interpretation--

Mr. Goddard: Thank you, Your Honor.

Justice Breyer: --that could be... well, I mean, it could.

I'm about to say maybe it isn't plausible enough.

Unknown Speaker: [Laughter]

Justice Breyer: The... the... but what I'm... what I'm driving at is that the... the Congress might have said that although Federal courts are in the business quite often, along with State courts, of deciding whether a State law is unconstitutional or violates some other Federal law, and although millions of State laws are very important, we're separating out a set of cases here where they can't do it.

Now, one reason for doing that would be we don't want to interfere with States getting money that they need for their business.

And that would limit these words to interferences with collection of revenue.

Mr. Goddard: Yes, Your Honor.

Justice Breyer: Now, you were about to explain to me why--

Mr. Goddard: I... I would--

Justice Breyer: --there's evidence that Congress wanted to do more than that.

Mr. Goddard: --I would greatly appreciate--

Justice Breyer: It wanted to do more than that.

It wanted, in fact, to say you just can't stop them from... you cannot, Federal courts, go and have our tax division here interfered with, even though it doesn't affect collection of revenue.

We... we don't want you to interfere with their rules, with their administration, with anything.

Also, the history of the Tax Injunction Act... it comes from a period when the... the Congress was reacting to this Court's decision in Ex parte Young, and they felt that extensive equitable relief against State officials was inappropriate, and they passed several laws, the Johnson Act and the Tax Injunction Act in the '30's being the most important, which spoke very broadly about keeping in State courts State proceedings.

They did not say anything about just collections, although--

Justice Ginsburg: Mr. Goddard, in that... in that regard, wasn't what Congress had in mind... it was taxpayer suits.

They didn't want taxpayers to avoid going through the whole process.

I mean, most of the cases that come up under the Tax Injunction Act are taxpayers who say please enjoin the tax or don't assess me or don't levy.

But this is not that kind of case.

There's no one here who's trying to stop the State from collecting revenue.

It's an attack by a non-taxpayer, and that at the time of the Tax Injunction Act, I don't think that kind of action was even on the scene.

Do you have any claims where a non-taxpayer was seeking to enjoin the collection of a tax?

What they... what... what Congress was aiming at is that, taxpayer, you've got a prompt, speedy, efficient remedy in your State, you use that, don't rush to the Federal court.

Mr. Goddard: --Your... Your Honor, the... the Congress had several reasons, and... and you're absolutely correct that one of the primary ones was not allowing taxpayers, especially out of State, to come in and interrupt the flow of taxes.

I'm not denying that that was a... a very important reason.

But as this Court has said in Rosewell v. LaSalle National Bank, if that was the only reason that they were concerned about the collection of taxes, they could have said so.

They could have said only diversity jurisdiction cases will be barred from Federal court.

They did not.

They used... they said essentially district courts shall not consider cases to restrain, enjoin, or suspend actions for the assessment, levy, and collection of taxes.

They also--

Justice Ginsburg: That was a taxpayer's case too, wasn't it?

Mr. Goddard: --Excuse me?

Justice Ginsburg: Wasn't the case you just cited... wasn't it... that also a taxpayer's attempt to--

Mr. Goddard: Yes, Your Honor.

Justice Ginsburg: --Yes.

Mr. Goddard: It was an assessment on property.

Justice Ginsburg: So I'm asking you about cases where we don't have a taxpayer who's not trying to stop any assessment of his tax, any... anything else about--

Mr. Goddard: Well, I guess the... the direct collision, Your Honor, is between the decision below in the Ninth Circuit and ACLU Foundation v. Bridges--

Justice Ginsburg: --It's the only one that I know.

Mr. Goddard: --which involves a challenge to a specific tax benefit given to religious organizations in Louisiana.

So I believe that's as close as I can come.

Your Honor, if I could reserve the balance of my time, I would like to do so.

Argument of Thomas G. Hungar

Chief Justice Rehnquist: Very well, General Goddard.

Mr. Hungar, we'll hear from you.

Mr. Hungar: Mr. Chief Justice, and may it please the Court:

The position of the United States is that respondents' suit is barred by the plain language of the Tax Injunction Act because it seeks to enjoin and restrain the assessment of a tax under State law.

And to turn directly to the--

Justice Stevens: May I ask you if you think the language is so plain that we should not even look at the legislative history?

Mr. Hungar: --We think it's... yes.

We think that the... the language is sufficiently plain that there's no need to look at the legislative history, but that if you do, the legislative history also supports the interpretation we advance.

Justice Stevens: And Judge Easterbrook was just dead wrong in looking at the legislative history and he also interpreted it dead wrong.

Mr. Hungar: Judge... the case before Judge Easterbrook, Justice Stevens, was quite different from this case.

That involved not an... a... a suit against tax... the tax collector to affect the manner in which the tax collector administered the tax code, but rather a suit against private plaintiffs who had brought a State court action.

It was a Federal court suit to enjoin a State court action.

And so the considerations applicable in that case were obviously quite different from those what we have... where we have presented here.

The point of the Tax Injunction Act is to... to protect the tax collector against Federal court suits to enjoin or restrain the tax collector's assessment, collection, and levy of tax.

Justice Stevens: Does... does that... were you finished your answer?

Mr. Hungar: Yes.

Justice Stevens: The... the... if you use the word enjoin to mean command, which it can mean, can you say that they are commanding the collection of a tax, contrary to the words of the statute?

Mr. Hungar: Yes.

We think that is also quite correct here.

That was not the issue addressed by the Ninth Circuit, but that is certainly another way to get to the result which we think is the correct result, that the plain language of the statute bars this kind of suit.

Turning to the questions about the meaning of assessment, it is perfectly clear beyond peradventure that under... in the Federal system, the term assessment means the tax collector's recorded determination of the amount of tax due under Federal law--

Justice Ginsburg: Do we have a self-assessment?

Mr. Hungar: --No, Your Honor.

Justice Ginsburg: We don't.

Mr. Hungar: No, Your Honor.

Justice Ginsburg: Is every... every taxpayer is assessed?

Mr. Hungar: Yes, Your Honor.

The... the--

Justice Ginsburg: Every taxpayer is assessed even when no deficiency is sought?

Mr. Hungar: --Yes, Your Honor.

The practice of the Internal Revenue Service is to assess the amount of taxes shown on the return if that is... absent some audit or some reason to think there's an error in the return.

And in fact, the Internal Revenue Code so provides.

Section--

Justice Ginsburg: That every taxpayer is assessed even when there's no deficiency.

Mr. Hungar: --Correct.

Well, if a taxpayer files a return showing a bottom line calculation of how much tax is due after all credits, deductions, and so forth have been taken into account, that amount and... and the tax... and the IRS checks the addition, concludes that it's accurate, and is not conducting an audit, that amount is assessed.

It's... it's recorded in the transcript.

Now, of course, it's on the computer.

Justice Breyer: You don't have to send them a notice of... in other words, I file my income tax.

I thought there's some provisions that say if somebody thinks I made a mistake, they have to send me some special notice.

Some process takes place.

We have some other case on this.

I thought all that involved an assessment, that it was a particular thing under the IRC, not just my filing of a... of the return.

Mr. Hungar: The assessment is a particular thing.

Under the Internal Revenue Code, it's the... it's the tax collect... the IRS's determination of the amount of tax--

Justice Breyer: But you just said to Justice Ginsburg that if nothing happens... like I try to pay my taxes accurately.

So I file these pieces of paper.

And now, nothing happens.

They just take the money.

They cash the check.

And... and you're going to say when that's all that happened, there was an assessment?

I thought it had a particular meaning that wasn't that, that was when you thought I was wrong, you did something and then went after me.

But... but it just... everybody is called an assessment?

Does it say that in the code where--

Mr. Hungar: --26 U.S.C. 6201.

This is not in the... the briefs.

26 U.S.C. 6201 (a)(1) provides, quote, the Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title.

So if the taxpayer has admitted on their tax return that they owe X dollars in taxes, the Secretary shall assess that amount and also has the discretion to conduct an audit.

Justice Ginsburg: --But... but nobody... nobody here is contesting, as far as I can tell, what we were told Monday is a mere bookkeeping entry.

Does it... does it... is a notice and demand sent out to everyone who's assessed?

What plaintiffs are seeking to do is prevent and restrain and enjoin the... the tax department from assessing taxes under State law in the manner required by State law, which includes, as part of the assessment, computation and allowance of the credit where it is due.

And the... and the suit in this case would preclude the tax collector from doing that if respondents were to succeed.

Justice Stevens: May I ask you--

Mr. Hungar: That's exactly what the act precludes.

Justice Stevens: --does the Arizona tax code have a provision in it comparable to the one that you read us... to us from the Federal code?

Mr. Hungar: I don't believe so, Your Honor.

I believe what the Arizona tax code provides--

Justice Stevens: Then it's hardly relevant, is it?

Mr. Hungar: --is that the... is that the tax collector there, the Department of Revenue, makes a determination or reviews the returns and ultimately either determines that that amount will be accepted, that... that the amount of tax shown on the return is the... going to be accepted as the amount of tax due from the tax collector, or that they're going to try to require some... you know, assess a deficiency or whatever it may be.

But in either case, within the meaning of Federal law, the tax collector's determination of what the amount is due, either if it's the amount shown on return... on the return or if they think it's a different amount, within the meaning of Federal law, that is the assessment.

And that is what the respondents are trying to change.

They're trying to require the tax collector to assess taxes not in a manner required under State law, which is the... the text of the statute, but rather in a manner contrary to State law.

Justice Ginsburg: Suppose they clarify that they're not trying to stop a bookkeeping entry from being made in Arizona, even though Arizona law doesn't require it, just like the Feds.

Mr. Hungar: Your Honor, the assessment under State law in Arizona includes the tax credit.

The respondents would change that and would preclude the tax collector from doing that.

Justice Scalia: If they couldn't stop a bookkeeping entry, I assume they couldn't stop the acceptance of the tax in accordance with a bookkeeping entry.

Isn't that right?

Mr. Hungar: That's correct.

Justice Scalia: I... I assume it's essential to their case that they stop that ultimate bookkeeping entry which determines how much the taxpayer owes.

Mr. Hungar: Exactly.

And the purpose of the--

Justice Ginsburg: Although we were told that there isn't that bookkeeping entry in Arizona, that they don't have it.

I'm informed that the tax collector looks at the returns when they come in, checks the addition, and in a certain number of cases goes further.

Justice Ginsburg: But that's not what you described as the assessment.

Mr. Hungar: The assessment is the tax collector's recorded determination of the amount due.

Justice Ginsburg: Which we were told they don't have in Arizona.

Mr. Hungar: Well, it... again, I think for purposes of Federal law, it... it is not unreasonable to assume that the tax collector in Arizona decides whether they're going to accept the amount of return shown on the tax as--

Justice Scalia: And keeps a record of it.

Mr. Hungar: --And keeps a record of it.

Exactly.

Justice Scalia: I mean, he must keep a record of it for--

Mr. Hungar: Exactly, exactly.

Now, the Attorney General can address that, but... but that's my understanding of Arizona law.

Justice Kennedy: --Isn't the case just simpler if we say you cannot command the collection of a tax, which is what's happening here?

Mr. Hungar: Yes, Justice Kennedy.

That... that is exactly right.

That is... that is entirely consistent with the United States' view of and interpretation of this act and the Anti-Injunction Act.

And it's also consistent with the legislative history and purposes of the act.

This Court has repeatedly recognized, in Justice O'Connor's opinion for the... for the Court in the Grace Brethren case and in other cases, that the purpose of the act sweeps more broadly than simply a focus on collection and--

Justice Ginsburg: But those were all taxpayers trying to stop the collection of tax from them.

Mr. Hungar: --Yes, Justice Ginsburg, but the Court did not say that the purpose and scope of the act is limited to that context, nor is the language limited to that context.

To the contrary, the Court said this... the act sweeps broadly to prevent Federal court interference in the administration of... of State tax systems.

Justice Kennedy: But wouldn't you agree that the primary purpose of the statute was to protect the State's fisc?

Mr. Hungar: That is certainly a primary purpose of the statute.

Justice Kennedy: And insofar as that purpose is relevant, you lose on that purpose.

Mr. Hungar: It's... it's not applicable here, although I think it is important to recognize that it would be quite extraordinary for Federal courts to be in the business of ordering State tax collectors to collect... to collect taxes from their citizens that the legislature of the State had deemed should not be collected.

Justice O'Connor: It's curious that the Moore's Federal Practice and Wright and Miller and Hart and Wechsler all suggest that the Tax Injunction Act does not prevent a challenge in Federal court to the constitutionality of State tax credits.

They seem uniform in that view.

Mr. Hungar: Well, I think some of those quotes, if I recall correctly, Justice O'Connor, deal with... they say the... the Tax Injunction Act does not apply to suits to collect taxes, which is a different situation than here.

Justice O'Connor: Well, they speak in terms of tax credits.

Has this Court taken some cases that appear to fly in the face of your theory and just not said anything about it?

Mr. Hungar: This Court in two or three cases identified by respondents has not addressed the Tax Injunction Act where it might be... it might be relevant.

Thank you.

Argument of Marvin S. Cohen

Chief Justice Rehnquist: Thank you, Mr. Hungar.

Mr. Cohen, we'll hear from you.

Mr. Cohen: Mr. Chief Justice, and may it please the Court:

I'll begin by stating what our position is.

The Tax Injunction Act and the associated principles of comity only... only... apply when a district court is asked to stop the flow of revenue to the State.

For more than 60 years, the act and the associated principles of comity have been applied only when claimants sought to stop the flow of tax revenues.

The decisions of this Court support this.

In challenges to tax credits, the Tax Injunction Act has been either not considered at all by this Court or in other Federal courts has specifically... they've specifically held, except in Bridges last summer... they've specifically held that the Tax Injunction Act did not apply.

It... this is... also our position is consistent with the revenue protective purpose of the Tax Injunction Act and common sense supports this.

If there's no threat to the flow of State revenue... State tax revenues, then the administration of the State tax laws is the same as the administration of education laws and penal laws--

Chief Justice Rehnquist: Mr. Cohen, going back to the language, assessment, levy, or collection of any tax, which was the subject of questions to your... your opponent, you don't question, do you, that the statute applies to income taxes as well as to property taxes?

Mr. Cohen: --Mr. Chief Justice, we don't question that.

Chief Justice Rehnquist: And would you question its applicability if the... the State could not point to a particular act of assessment or levy or collection in its procedures?

Mr. Cohen: Your Honor, we view the phrase, enjoin, suspend, or restrain the assessment, levy, or collection, as a phrase.

We... we don't believe that any one word there has special meanings.

That phrase has been interpreted by the courts to say that the process of causing a flow of tax revenues to the State will not be stopped.

Justice Kennedy: You mean I... I can't read this statute to say that the district court shall not enjoin the collection of a tax?

I have to read all the other things with it?

That... that's a very strange interpretation of any statute.

Mr. Cohen: Justice Kennedy, the... let's take a... I... I believe the idea was that there is a process.

The... at the time the word assessment was first used, it was 1867 in the Federal Anti-Injunction Act, which was the model for the Tax Injunction Act in 1937, as this Court held in Jefferson County.

And at that time if a... and a... the assessment process which was valuing property... if that had been stopped, then... then they wouldn't get to the collection phase, or if they stopped the levy phase, they wouldn't get to the collection phase.

So it's a... the concept was that it took these three things to make the flow of revenue come to the State.

And that while individuals have an option under the section 1983 and 1343 together to choose either the Federal or State courts in which to vindicate their constitutional rights, the Congress decided that they should not have that option if it could interfere... if it could stop the flow of revenues to the State--

Justice Scalia: Let's assume--

Mr. Cohen: --but it didn't go farther than that.

Justice Scalia: --Let's assume it means just that.

Mr. Cohen: Yes.

Justice Scalia: And... and let's assume that... that you get your injunction in a Federal district court against the Secretary of State's collection of this tax.

What is the Secretary of State to do?

His... his State statute tells him that he should collect less.

This injunction says he should collect more.

He will appeal the case from the district court to the court of appeals.

Meanwhile, what is he to do?

He is not authorized by State law, which he thinks is valid, to collect more.

It seems to me during the whole period while that... that case is on appeal from the district court to the court of appeals to the Supreme Court, if it gets here, the Secretary of State doesn't know what to do, and his collection of the tax is impaired.

Mr. Cohen: Justice Scalia--

Justice Scalia: Why isn't that so?

Mr. Cohen: --The... two... two answers, if... if you allow me.

The first is that the district court, of course, has the power to stay the effectiveness of that judgment until there is a final decision, and he could be asked--

Justice Scalia: Well, then the statute wouldn't apply I suppose.

It just says it shall not enjoin.

We're assuming it has enjoined.

If your reading is correct, it should be able to enjoin because there's nothing wrong with enjoining.

Okay?

Let's assume it does enjoin.

Does that not interfere with the collection, even if you think that that's... that's all that's at issue is the collection of taxes?

How is the State going to collect its taxes?

Mr. Cohen: --Justice Scalia, the statute does not say interfere.

The statute talks about stopping the collection, and this would not stop the collection.

It would... it would allow the collection--

Justice Scalia: You have a much narrower position.

Your earlier position was this whole purpose was just to protect the State's tax revenue and so long as it doesn't impair that.

Now you say it can impair that so long as it does not enjoin it.

That's a much narrower--

Mr. Cohen: --Justice Scalia, I'm not saying that.

I... I... you--

Justice Scalia: --I thought that's what--

Mr. Cohen: --I must have misspoke myself because what I am saying is that they can't stop the collection of taxes and that this would not stop the collection.

Justice Kennedy: --But the statute doesn't say stop.

It says enjoin and enjoin can mean... can mean command.

Mr. Cohen: In Jefferson--

Justice Kennedy: And that's exactly what you're doing.

You're commanding the collection of the tax.

Mr. Cohen: --Justice Kennedy, in Jefferson County, this Court unanimously interpreted the statute to say stop the collection.

That's what this Court said in Jefferson County, and there are a number of cases in which a commandment seeking to command the payment of taxes has been held to be outside the Tax Injunction Act.

Justice Scalia: Can I bring you... can I bring you back to my question which I don't think I got an answer to?

What is the Secretary of State supposed to do?

He has gotten an order from a Federal district court to collect more taxes than he is authorized to collect under State law.

He intends to appeal that district court order, but meanwhile, he has been enjoined from collecting.

What is he supposed to do?

Mr. Cohen: Justice Scalia, he obeys the order of the court and he's... he's only enjoined from--

Justice Scalia: Well, that means--

Mr. Cohen: --He's only enjoined with regard to the tax credit.

He's not enjoined from collecting the tax which includes not honoring the tax credit.

Justice Souter: --And I take that... I take it that's the answer to... to Justice Kennedy's question, that his obligation to collect the tax is an obligation under State law, and once he is enjoined from recognizing the credit, he simply follows State law and collects the tax without reference to the credit.

The Federal court, conversely, doesn't say, you go out and collect the tax.

The State law does that.

Is... is... do you buy that?

Mr. Cohen: Yes, absolutely.

Justice Scalia: He believes the district court decision is wrong, and let's assume it is wrong.

What is he supposed to do while it is on appeal?

Mr. Cohen: Unless it... Your Honor, unless it is stayed, he is to obey it, and--

Justice Scalia: And that does not--

Mr. Cohen: --It does not interfere with the collection... with the flow... it does not interfere with the flow of revenue to the State, and that's what the Tax Injunction Act is basically about.

Justice Souter: --He... he obeys the injunction and he obeys State law except with respect to the credit which he is enjoined from giving.

Mr. Cohen: I agree, Your Honor.

Justice Souter: And the result is that he collects the... the full tax.

That's the way it would work.

Mr. Cohen: That's correct, Your Honor.

Justice Scalia: Suppose... suppose the State law says if these tax credits are invalidated, all other taxpayers shall be assessed an additional 2 percent to make up for... I'm sorry.

If these... if these tax credits are invalidated, other taxpayers shall be... their taxes shall be reduced by 1 percent.

Okay?

I mean, the... the State looks forward to this possibility that there will be an injunction.

What is the Secretary of State to do then?

Is he to assess everybody else at a lesser amount?

Mr. Cohen: Your Honor, I believe--

Justice Scalia: In other words, he is prevented from collecting the additional amount that he would have had to collect from other taxpayers had this tax credit been acknowledged.

The tax credit is struck down, and what the law says is, if it's struck down, you have to collect more from everybody else.

Now, I assume in that situation the district court would not be able to enjoin the collection, would it?

So all you're talking about is whether the State law is... is drafted in a clever way or not.

Mr. Cohen: --Your Honor, if... if the tax credit is struck down, the State gets more money.

It has no need to assess an additional 1 or 2 percent of its taxpayers.

But if... if the State in its wisdom chose to do so, then whoever collects taxes would obey the State law until another case came to court and another judge told them what to do.

Justice Breyer: All right.

So... so there would be some interference.

But what do you do about the word?

I mean, I'm somewhat shaken by the fact that the... the Internal Revenue Code does... as I have just read 6201 and 6203, it does use that word assessment as apparently to refer simply to the record keeping function of the tax division which it says under rules and regulations the assessment shall be made by recording the liability of the taxpayer in the Office of the Secretary.

And therefore, what it seems to have in mind in the IRC is a simple bookkeeping notation of how much money this taxpayer owes which takes place in every case.

Now, the... the act says there shall be no suit that restrains the assessment of that tax; i.e., you cannot restrain the Secretary in noting the amount that the taxpayer owes.

Now, they're saying stop right there.

End of the matter.

Now, what in your opinion overcomes that argument?

Mr. Cohen: Your Honor, Justice Breyer, it's interesting about the Internal Revenue Code and the... the Federal income tax law because there is a corollary to the Tax Injunction Act: the Anti-Injunction Act of 1867.

And it uses the word assessment.

And there are a number of Federal court decisions saying that that does not apply to tax credits.

And in each--

Justice Breyer: That's not an answer for the reason--

Mr. Cohen: --May I--

Justice Breyer: --that they're saying they're wrong, just as they say we were wrong in five cases not to notice this.

So continue, please.

Mr. Cohen: --Yes.

None of them... none of them looked at the word assessment in isolation.

What it looked at... what those cases looked at was the phrase, as... as I've suggested to the Court, that the phrase assessment, levy, and collection is the process of creating the flow of revenue.

Justice Scalia: But it isn't and; it's or.

Isn't it?

Mr. Cohen: The... Justice Scalia, it... it is or for purposes of saying that you can't restrain any of those because if you restrain any of those in the context of creating the stream of revenue, you have stopped the stream of revenue.

And that... that's what history of the act shows, the purpose of the act.

Justice Breyer: So your answer is this.

You say indeed they've got it correctly defined.

Indeed, it says assessment.

It says assessment, levy, or collection.

But that phrase does not refer to every assessment, levy, or collection.

Rather, in context it refers to those assessments, levies, and collections that will have, were they enjoined, the impact of cutting the revenue stream flowing to the State.

Mr. Cohen: That's our position, Your Honor.

Justice Breyer: That's your view.

So we should look at that in context.

That's why you go to the history and these other things.

Mr. Cohen: That's correct, Your Honor.

Justice Breyer: All right.

I understand.

Mr. Cohen: I... I would like to also point out to the Court that this use of a tax credit as a mechanism could also to... that is to funnel money to school tuition organizations could just as well have been an appropriation of dollars and vouchers.

And if instead the State was giving vouchers to school tuition organizations, 93 percent of which went to religious schools, there would be no question about the individual citizen's option to choose to go to the Federal court.

Justice Scalia: But it wasn't done that way.

I mean, it's just like saying it could have been extracted by torture too, and that would have been clearly unconstitutional.

Unknown Speaker: [Laughter]

Justice Scalia: But that happens not to be the way it was done.

Mr. Cohen: That's correct, Your Honor, but in Nyquist this Court particularly pointed out that a tax credit was the same as giving money to the State.

That... that was this Court dealing with a tax credit that... where the money was used to support religious schools, which is just what we're asserting here.

Chief Justice Rehnquist: Mueller certainly distinguished that part of Nyquist.

Mr. Cohen: I'm sorry, Mr. Chief Justice.

I didn't--

Chief Justice Rehnquist: The Mueller against Allen case surely distinguished that part of Nyquist.

I mean, it's much less valuable to... after Mueller than it was before Mueller.

Chief Justice Rehnquist: Why should... why should that make any difference to your argument?

Mr. Cohen: --It... generally, it wouldn't, but a tax credit is every dollar that goes to the benefit of the school tuition organization... if it wasn't given to them, every dollar of that would go to the State.

In a tax deduction, a tax deduction is a more generalized... helping to support charity, and only a portion of that money goes to the State--

Chief Justice Rehnquist: Yes.

It may be... it may be a smaller amount, but in both cases it goes to the person who... who claims it.

My use of tax credit with Nyquist is that that's an unusual feature of Nyquist is it's dollar for dollar.

In Mueller, there was the... there were a number of considerations when you deal with a tax deduction.

They're a little different than tax credit, and this Court has recognized those.

Generally they are tax benefits and generally they are to be considered outside the Tax Injunction Act according to the cases.

Justice Ginsburg: Is the point you're making is... is it's the taxpayer who's designating a certain portion of money which would otherwise go to the general revenues will instead go to this charitable purpose.

It's kind of like on the Federal return where you can check off and say I want $3... instead of going to general revenues, it goes to fund campaign... to presidential elections.

Mr. Cohen: Justice--

Justice Ginsburg: That's on the... that's what this is, isn't it?

Mr. Cohen: --Justice Ginsburg, that's exactly right.

That's what I'm saying.

And if you have no further questions--

Justice Stevens: I have--

Justice Scalia: --I do.

I do have one.

Unknown Speaker: Don't kid yourself.

Justice Scalia: Go on.

Go first.

Justice Stevens: I just want to make sure I didn't miss something in your argument, Mr. Cohen.

Talking about the history of this statute, did you refer to an earlier statute that used the similar language in the same order, assessment, levy, and collection or collection and levy, whichever it is, and that that statute only applied to real estate taxes?

Was that... did you say that?

I want to make sure I didn't--

Mr. Cohen: --Justice Stewart, I was referring to the Anti-Injunction Act of 1867--

Justice Stevens: --Right.

Mr. Cohen: --in which the word levy was not used.

It was assessment or collection, and I said it was in the context of valuation then because there was no income tax in 1867.

And that could be... for instance, I know there weren't Federal property taxes, but it could be in... in valuation of... of property for tariffs coming in or things of that nature.

The word assessment then was not used in the context of the income tax laws.

That's all I was saying because there were none.

Justice Stevens: And... and it would be perfectly natural in the real estate tax context to use them in that order because the assessment comes first.

Whereas, the argument of your opponents here is the assessment is the last thing in the chain of events, which seems somewhat counter-intuitive if you're... when you're referring to income taxes.

Mr. Cohen: I... I agree, Justice Stewart.

Justice Breyer: See, this... in... in... do you know this in State tax systems?

Apparently in the Federal tax system assessment refers to an official determination of the amount that the individual taxpayer owes.

Now, there are 50 State systems plus the District of Columbia.

Do you know if there are a significant number of States that would not consider that official determination of the amount owed to be an assessment?

Mr. Cohen: Mr. Justice Breyer, no, I do not know.

We haven't done a survey of the States.

Justice Scalia: But the question I was going to put was you... you say that the... the principal purpose of this law was to protect the fisc of the State.

And I... you know, I will concede that, that... that what Congress was most concerned about was preventing somebody from stopping the State from collecting money.

But it's not unusual that Congress drafts its prohibitions broader than is necessary to achieve just the narrow purpose.

And if indeed they... they prohibited not just stopping the collection but also stopping the assessment, it seems to me we have to take the statute for what it says, if indeed this is an assessment.

And the mere fact that it goes beyond what the principal purpose was, I mean, that... that's often the case with statutes.

Mr. Cohen: Justice Scalia, the State contends and the United States both contend that this statute is... the purpose of it was to stop any court... Federal court interference with the tax administration process itself.

And the... the Federal court decisions, other than Bridges, reject that point of view.

And this Court rejected that point of view in Jefferson County when the... the issue there was that the county had sued in the State court against Federal judges to try to get an occupational tax.

And the Federal judges removed the case to Federal court, and the county said, well, the Tax Injunction Act applies here because the Federal judges are going to raise State tax issues and this Federal court will be deciding cases having to do with State tax administration.

And they cited the Kelleher case out of the Second Circuit which it held that the Tax Injunction Act was so broad that it applied to tax... all State tax administration.

And this Court rejected that position, and this Court I believe unanimously overruled Kelleher.

So we--

Justice Scalia: Mr. Cohen, we are ships passing in the night because you're... I don't care what the purpose was.

I care what the language says, and my point is that very often the language goes beyond the narrow purpose that Congress had in mind.

And when... when the language does so, we read the statute as it's written, but you don't... don't agree with that apparently.

We... we have to intuit the purpose and limit the language no matter what it says to that purpose.

Mr. Cohen: --Mr. Justice, I... I'm saying that for 60 years with the Tax Injunction Act and for 150 years... no... I guess 140 years with the Anti-Injunction Act that is the way the Federal courts... the way we're suggesting is the way the Federal courts have interpreted this language.

And we suggest that if there's a problem, as long as the tax revenue is flowing to the State and we're not interfering... we're not stopping that, if there's a problem with... with that system that's been there now for, oh, 60 years for States, 140 years for the Federal fisc, if there's a problem, the States can take that problem to Congress to change this exemption.

This is an exemption from the Federal jurisdiction, which under the Phillips case is to be narrowly construed.

If... if they... if there's a real problem... and I suggest there is not because the money will continue to flow to the State notwithstanding our... the Federal court jurisdiction here.

And we believe that the law should not be changed and we request that the... this Court remain with the past 60 years and 140 years of judicial experience on this issue.

Thank you very--

Justice Ginsburg: Mr. Cohen--

Rebuttal of Samuel Goddard

Chief Justice Rehnquist: --Thank you, Mr. Cohen.

General Goddard, you have 4 minutes remaining.

Mr. Goddard: Thank you, Your Honor.

If... if I may go to the overriding principle here because I think to some extent that's what governs the actions of the State and should be appropriate here.

As this Court said in... many years ago under the principle of comity, which Mr. Cohen referred to, comity refers to the scrupulous regard for the rightful independence of State governments which should at all times actuate the Federal courts and a proper reluctance to interfere by injunction with their fiscal operations.

That's Matthews v. Rodgers.

Justice Ginsburg: What... what happened in... in Nyquist and Mueller?

Is that just the Court overlooked it?

Mr. Goddard: Your... Your Honor, the Court did not deal in any way with the issue of... of section 1341 in either Nyquist or Mueller, and I believe under... under your decision in DeBuono there is... which also deals with 1341 and the failure to raise it, there can be a presumption that the escape clause was exercised.

It is... if there is no plain, speedy, or adequate remedy under State law, obviously jurisdiction in the Federal court is appropriate.

Justice Ginsburg: But there... one sees plain, speedy, and effective--

Mr. Goddard: Efficient.

Justice Ginsburg: --that's a taxpayer who has to go through the system.

But that... that's... how does that fit when it's a non-taxpayer who's stopping... who's... who's trying to declare a credit unconstitutional?

This... this quick, speedy remedy is... is that the taxpayer gets a refund remedy, gets a deficiency, whatever it is, but how does this swift... how does that play into somebody who is not a taxpayer?

In the... in this issue... and I think that a critical thing is these... these taxpayers have a remedy at State law.

This case was decided by the Arizona Supreme Court in Kotterman v. Killian, and this... this... the Supreme Court denied cert 4 years ago.

The exact same issues that have been brought forward in Federal court by the petitioners in this case were decided by the Arizona Supreme Court under the Arizona constitution and the United States Constitution, and there was not an establishment issue in this case.

And that brings me back--

Justice Ginsburg: I meant within the meaning of the Injunction Act, it seems that swift, whatever, remedy was referring to the taxpayer's remedy under State law--

Mr. Goddard: --Yes.

Justice Ginsburg: --could take care of--

Mr. Goddard: Yes, Your Honor, and under the Federal law there's a problem because you can't pay a tax and get it refunded if you're a third party.

But in Arizona law, there is standing for... for these parties and that's already been exercised.

They're trying to take another shot by going into Federal court and trying to get an... another opinion which will deviate from the Arizona Supreme Court.

And excuse me.

If I could refer--

Justice Ginsburg: --The same plaintiffs?

If it's the same plaintiffs, you would have a... a--

Mr. Goddard: --Your Honor, I... I didn't mean to imply they were the same plaintiffs, but they were exactly the same issues in turning a constitutional violation.

If I could to Justice Scalia's earlier question, as the... as the legal representative of the Arizona Department of Revenue, if there were an adverse decision in the... in the district court of Arizona... and our Supreme Court has already spoken on the same issue... I have a very hard time advising a client as to what they should do going forward in terms of honoring, under Arizona law, the school tax credit.

Justice Ginsburg: --We have that same problem in habeas sometimes too when the State Supreme Court disagrees with the Federal district court.

Mr. Goddard: Yes, Your Honor, but in the situation in habeas, we don't have the Tax Injunction Act.

We don't have a specific legislative bar that says there will not be jurisdiction in the district court if there is a plain, speedy, and efficient remedy at the State court.

And I believe that is... it doesn't tolerate any... any degrees of variation.

As this Court has said, it's... it's automatic.

There is... it is... there are no exceptions.

Chief Justice Rehnquist: Thank you, General Goddard.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until tomorrow at 10 o'clock.

The question presented for our review, does a Federal District Court have authority to adjudicate respondent’s constitutional challenge?

To be more specific a federal law, the Tax Injunction Act of TIA, prohibits a Federal District Court from restraining the assessment, levy, or collection of any tax under state law.

Does that Act bar this suit?

Arizona’s Revenue Director thinks it does.

He moved to dismiss the case urging that a federal injunction would restrain the assessment of taxes under state law.

The District Court agreed and granted the motion.

The Court of Appeals for the Ninth Circuit reversed holding that the TIA does not bar the federal proceeding.

Affirming the judgment of the Ninth Circuit, we now hold that respondent’s suit is not the kind TIA proscribes.

In decisions spanning a near half century including civil rights challenges, the state action aimed at circumventing ground of the Board of Education, courts in the federal system including this court, as a reviewer of lower court’s decisions have entertained challenges to tax credits authorized by state law without viewing the TIA as a jurisdictional barrier.

On this first occasion squarely to confront the issue, we confirm the authority Federal Court exercised in those cases.

The Director argues in effect that we and other Federal Courts were wrong to adjudicate those challenges.

He contends that the TIA trumps 42 U.S.C. Section 1983 which authorizes civil actions for deprivation of federal rights under color of state law.

The TIA, the Director maintains, bars all lower court interference with state tax systems even when the plaintiff is not trying to avoid paying the tax imposed on him and no matter that the state revenue would increase should the plaintiff prevail.

The alleged jurisdictional bar which the Director asserts has existed since the TIA’s enactment in 1937, was not even imagined by juror’s in pathmarking civil rights cases just mentioned, or by the defendants in those cases who had every interest in defeating Federal Court adjuticatorial authority.

Our prior decisions command no respect, the Director maintains, because they are mere silent holdings.

We reject that assessment.

This suit implicates neither the TIA’s conception of the tax assessment nor any of the Act’s underlying purposes.

Taking account of the prospective nature of the relief requested, does respondent’s suit in the TIA’s words seek to enjoin, suspend, or restrain the assessment, levy, or collection of any tax under state law?

The answer turns on the meaning of the term assessment as employed in the TIA.

For Internal Revenue Code purposes an assessment involves a recording of the amount the tax payer owes the government, rather than reading the word assessment in isolation, we follow the cardinal rule that statutory language must be read in context.

In the TIA and tax law generally, an assessment is closely tied to the collection of a tax.

The assessment is the official recording of liability that triggers levy and collection efforts.

A court should also interpret the statute to effectuate all its provisions, if as the Director asserts, the term assessment by itself signify the entire plan of taxation the TIA would not need the words levy or collection.

The term assessment alone would do all the necessary work.

Just as another federal statute, the Anti-Injunction Act shields federal tax collections from Federal Court injunctions, so the TIA shields state tax collections from Federal Court restraints.

Third party actions not seeking to stop the collection of the tax imposed on the plaintiff or outside Congress’ fair view.

In enacting the TIA, Congress trained its attention on tax payers who sought to avoid paying their tax bill by pursuing a challenge route other than the one specified by the taxing authority.

No where does the tax of the Act or its legislative history announce a sweeping congressional direction to prevent, in the director’s words, Federal Court interference with any aspect of state tax administration.

This understanding underpins our case law relevant to the TIA and the decisions of other Federal Courts as well consistent with the decades long understanding prevailing on this issue, respondent’s suit may proceed without any TIA impediment.

Justice Stevens has filed a concurring opinion; Justice Kennedy has filed a dissenting opinion in which the Chief Justice, Justices Scalia and Thomas join.